ECB Survey Of Professional Forecasters Research Articles

Testing for differences in survey‐based density expectations: A compositional data approach

SummaryWe propose to treat survey‐based density expectations as compositional data when testing either for heterogeneity in density forecasts across different groups of agents or for changes over time. Monte Carlo simulations show that the proposed test has more power relative to both a bootstrap approach based on the KLIC and an approach that involves multiple testing for differences of individual parts of the density. In addition, the test is computationally much faster than the KLIC‐based one, which relies on simulations, and allows for comparisons across multiple groups. Using density expectations from the ECB Survey of Professional Forecasters and the US Survey of Consumer Expectations, we show the usefulness of the test in detecting possible changes in density expectations over time and across different types of forecasters.

Expectation formation and the Phillips curve revisited

Abstract This paper studies expectation formation of professional forecasters in the context of the Phillips curve. We assess whether professionals form their expectations regarding inflation and unemployment consistent with the Phillips curve based on individual forecast data taken from the ECB Survey of Professional Forecasters. We consider expectations over different horizons and do not restrict the analysis to point forecasts but we also take the information inherent in density forecasts into account. We explicitly consider the role of anchoring of inflation expectations as potential source of nonlinearity, and we also assess whether the Phillips curve relation translates to a link between uncertainty regarding inflation and unemployment. Our findings show that professionals tend to build their expectations in line with the Phillips curve but this is only observed for expectations made for shorter horizons. For longer horizons, the Phillips curve connection is much weaker. This relationship also depends on the degree of anchoring and results in a connection between uncertainty regarding future inflation and unemployment.

Heterogeneity of beliefs and information rigidity in the crude oil market: Evidence from survey data

This paper assesses information contained in the micro dataset of the ECB Survey of Professional Forecasters regarding quarterly Brent crude oil price forecasts. We examine the expectations building mechanism by referring to the processing of information and confirm the presence of information rigidity within the crude oil market. However, our findings also show that simple models of imperfect information considered in the literature are insufficient to explain the behavior of professional forecasters. We provide additional stylized facts which are helpful for designing more elaborate imperfect information models.

Anchored or de-anchored? That is the question

Using a variety of approaches, this paper shows that long-term inflation expectations have de-anchored from the ECB’s inflation aim. The long-term expectations reported in the ECB Survey of Professional Forecasters have not regained the levels that prevailed before the 2013-14 disinflation. Long-term expectations have also become sensitive to short-term expectations and to negative surprises to inflation. Forecasters who participated in most of the survey rounds were highly sensitive to short-term developments in inflation.

Anchoring of Consumers’ Long-Term Euro Area Inflation Expectations During the Pandemic

This paper analyses the results from a new monthly survey of consumers’ euro area inflation expectations before and during the pandemic. We find that consumers’ longterm euro area inflation expectations have remained elevated above the ECB’s inflation aim throughout the pandemic. Moreover, their distributions have continuously shown a greater probability of high inflation (2pp above the ECB’s inflation aim of 2%) than of deflation during the pandemic. These results suggest that during the pandemic consumers’ long-term euro area inflation expectations have been de-anchored on the upside rather than on the downside. This is in contrast to concerns by ECB policymakers about a de-anchoring on the downside during the pandemic. We find that during the pandemic consumers’ expected probabilities in the long term of deflation in the euro area have been above those from the ECB Survey of Professional Forecasters, and below those implied by options. We also find based on consumers’ point inflation expectations and on three measures calculated directly from their individual expected probability distribution, that consumers’ long-term euro area inflation expectations have been better anchored for higher education levels and for higher net household income.

De-anchored Long-term Inflation Expectations in a Low Growth, Low Rate Environment

This paper provides evidence of de-anchoring of long-term inflation expectations in the euro area based on both time series and panel methods and data from the ECB Survey of Professional Forecasters. Long-term inflation expectations recorded two sharp and permanent declines: the first after the 2013 disinflation, the second in early 2019. Long-term inflation expectations also started reacting to short-term developments in inflation after the 2013 disinflation. Long-term growth expectations have declined continuously since the early 2000s. Looking forward, the increased likelihood of a low growth and low inflation environment may reduce the monetary policy space. The positive correlation between long-term real GDP growth and inflation expectations suggests that forecasters view future macroeconomic developments as driven mainly by demand-side shocks. Under these circumstances, the risk of a further de-anchoring of long-term inflation expectations remains high.

Long-run inflation expectations in the ECB survey of professional forecasters: what do the survey responses tell us?

Research background: At the background, there are issues related to policy credibility and policy targets. For these issues, long-term forecasts can provide important information. Of course, long-term forecasts are needed also e.g. for evaluation of real returns.
 Purpose of the article: This paper tries to find out how informative the ECB Survey of Professional Forecasters data on long-term inflation prospects are from the point of view of the overall quality of the survey and on the other hand from the point of view of monetary policy credibility.
 Methods: The analysis makes use of individual forecaster level quarterly panel data for the period 1999Q1?2018Q4. Conventional panel econometrics tools are used to find out whether forecasts are sensitive to changes in actual inflation and other relevant variables.
 Findings & Value added: We find some weaknesses considering the size of the survey, the selection of the sample (more precisely the participation to the survey) and the inertial responses of forecasters which suggest that the survey values are not actively updated. Moreover, we find that towards the end of the sample period, the survey values are related to actual inflation and to short-term expectations, which is not consistent with the credibility of the official inflation target.

Recent Developments in Macro-Econometric Modeling: Theory and Applications

Developments in macro-econometrics have been evolving since the aftermath of the Second World War.[...]

The Effect of the Eurosystem’s Expanded Asset Purchase Programme on Inflation Expectations: Evidence From the ECB Survey of Professional Forecasters

The Effect of the Eurosystem’s Expanded Asset Purchase Programme on Inflation Expectations: Evidence From the ECB Survey of Professional Forecasters

Twenty-Two Years of Inflation Assessment and Forecasting Experience at the Bulletin of EU & US Inflation and Macroeconomic Analysis

The Bulletin of EU & US Inflation and Macroeconomic Analysis (BIAM) is a monthly publication that has been reporting real time analysis and forecasts for inflation and other macroeconomic aggregates for the Euro Area, the US and Spain since 1994. The BIAM inflation forecasting methodology stands on working with useful disaggregation schemes, using leading indicators when possible and applying outlier correction. The paper relates this methodology to corresponding topics in the literature and discusses the design of disaggregation schemes. It concludes that those schemes would be useful if they were formulated according to economic, institutional and statistical criteria aiming to end up with a set of components with very different statistical properties for which valid single-equation models could be built. The BIAM assessment, which derives from a new observation, is based on (a) an evaluation of the forecasting errors (innovations) at the components’ level. It provides information on which sectors they come from and allows, when required, for the appropriate correction in the specific models. (b) In updating the path forecast with its corresponding fan chart. Finally, we show that BIAM real time Euro Area inflation forecasts compare successfully with the consensus from the ECB Survey of Professional Forecasters, one and two years ahead.

How Informative are Aggregated Inflation Expectations? Evidence from the ECB Survey of Professional Forecasters

This study examines short- and long-term inflation expectations in the unbalanced panel of the ECB Survey of Professional Forecasters. We focus on dispersion of forecaster views comparing two sub-groups of survey respondents based on forecast accuracy. We then examine possible differences between regular and irregular forecasters, and assess the impacts of varying panel composition on aggregated survey information. Our analysis indicates that survey participation is not necessarily completely random, i.e., statistically independent of forecaster views or confidence levels. While the study provides evidence that aggregated survey responses are generally a reliable proxy for inflation expectations in the euro area, one should also pay attention to expectations at the micro level, especially in periods of increased forecast uncertainty.

The Long-Term Distribution of Expected Inflation in the Euro Area: What has Changed Since the Great Recession?

This paper analyses the distribution of long-term inflation expectations in the euro area using individual density forecasts from the ECB Survey of Professional Forecasters. We exploit the panel dimension in this dataset to examine whether this distribution became less stable following the Great Recession, subsequent sovereign debt crisis and period when the lower bound on nominal interest rates became binding. Our results suggest that the distribution did change along several dimensions. We document a small downward shift in mean long-run expectations toward the end of our sample although they remain aligned with the ECB definition of price stability. More notably, however, we identify a trend toward a more uncertain and negatively skewed distribution with higher tail risk. Another main finding is that key features of the distribution are influenced by macroeconomic news, including the ex post historical track record of the central bank.

Inflation uncertainty, disagreement and monetary policy: Evidence from the ECB Survey of Professional Forecasters

Abstract We analyze the determinants of average individual inflation uncertainty and the cross-sectional variance of point forecasts (“disagreement”) based on data from the European Central Bank's Survey of Professional Forecasters. We empirically confirm the implication from a theoretical variance decomposition that disagreement is an incomplete approximation to overall uncertainty. Both measures are associated with macroeconomic conditions and indicators of monetary policy, but the relations differ qualitatively. In particular, average individual inflation uncertainty is higher during periods of expansionary monetary policy, whereas disagreement rises during contractionary periods. This implies that conclusions based on disagreement as a single indicator of ex ante uncertainty are incomplete and potentially misleading.

How Informative are Aggregated Inflation Expectations? Evidence from the ECB Survey of Professional Forecasters

How Informative are Aggregated Inflation Expectations? Evidence from the ECB Survey of Professional Forecasters

How useful are measured expectations in estimation and simulation of a conventional small New Keynesian macro model?

This paper examines how measured expectations (survey data) affect the basic properties of a conventional small New Keynesian macro model. In particular, how do survey expectations change the role of persistence of inflation and output (i.e. coefficients of the corresponding lagged terms)? Survey data are modeled in several different ways, to facilitate an analysis of different relationships with rational expectations. The model is estimated by means of a Bayesian estimator from quarterly euro area data using both aggregated and micro level data from the ECB Survey of Professional Forecasters for 1999Q1–2012Q3. The broad finding is that the use of measured expectations produces more economically meaningful results than does the standard use of model-consistent rational expectations. In particular, survey expectations also reduce the relative weights of the lagged dependent variables in the Phillips curve and the IS curve. All this shows up in impulse responses that turn out to be quite different suggesting that measured expectations are not only proxies of rational expectations. By contrast, measured expectations are related to rational expectations with a way that may well reflect different adjustment and learning processes.

The Measurement and Behavior of Uncertainty: Evidence from the ECB Survey of Professional Forecasters

Summary We examine matched point and density forecasts of output growth, inflation and unemployment from the ECB Survey of Professional Forecasters. We construct measures of uncertainty from individual histograms, and find that the measures display countercyclical behavior and have increased across all forecast horizons since 2007. We also derive measures of forecast dispersion and forecast accuracy, and find that they are not reliable proxies for uncertainty. There is, however, evidence of a meaningful co-movement between uncertainty and aggregate point predictions for output growth and unemployment. These results are robust to changes in the composition of the survey respondents over time. Copyright © 2015 John Wiley & Sons, Ltd.

Analysis of Aggregated Inflation Expectations Based on the ECB SPF Survey

This paper examines aggregated inflation expectations based on the ECB Survey of Professional Forecasters (ECB SPF). We analyse possible impacts of changing panel composition on short and long term point forecasts and forecast uncertainties using approach, which is based on a set of sub-panels of fixed composition. Our results indicate that the unbalanced panel data do not cause systematic distortions to aggregated survey information. However, micro level analysis of expectations would also be useful, especially in times of wide disagreement across forecasters and high levels of inflation uncertainty. Keywords: survey data, expectations, changing panel composition

Density characteristics and density forecast performance: a panel analysis

In this paper, we exploit micro data from the ECB survey of professional forecasters to examine the link between the characteristics of macroeconomic density forecasts (such as their location, spread, skewness, and tail risk) and density forecast performance. Controlling for the effects of common macroeconomic shocks, we apply cross-sectional and fixed effect panel regressions linking such density characteristics and density forecast performance. Our empirical results suggest that many macroeconomic experts could systematically improve their density performance by correcting a downward bias in their variances. Aside from this shortcoming in the second moment characteristics of the individual densities, other higher moment features, such as skewness or variation in the degree of probability mass given to the tails of the predictive distributions, tend—as a rule—not to contribute significantly to enhancing individual density forecast performance.

Analysis of Forecast Errors in Micro-Level Survey Data

This paper studies forecasts errors at the micro level using two alternative survey data sets. The main focus is on inflation and real GDP growth forecasts in the ECB Survey of Professional Forecasters. For comparison, inflation forecasts in the US Survey of Professional Forecasters are also examined. Our analysis indicates that forecast errors are positively related to the subjective uncertainties based on probability distributions, but not to disagreement (standard deviation of point forecasts). We also show that forecast errors, which are rather persistent, are related to forecast revisions. Revisions of expectations generally lead to larger forecast errors. Subjective uncertainty measures, which are available at the time of forecasting, are useful in assessing future forecast errors. Key words: Forecasting, Survey data, Expectations JEL Classification: C53, E37, E31

Inattentive professional forecasters

Using the ECB Survey of Professional Forecasters to characterize expectations at the micro-level, we emphasize two new facts: forecasters (i) fail to systematically update their forecasts and (ii) disagree even when updating. It is moreover found that forecasters have predictable forecast errors. These facts are qualitatively supportive of recent models of inattention and suggest a setup where agents imperfectly process information due to both sticky information à la Mankiw–Reis, and noisy information à la Sims. However, building and estimating such an expectation model, we find that it cannot quantitatively replicate the error and disagreement observed in the data.